Employee Ownership Foundation: Making the Case

The following originally ran as the Washington Report column in the February 2013 issue of the ESOP Report, the newsletter of The ESOP Association.

When the leadership of the Association authorized the creation of the Employee Ownership Foundation in the mid-90s, a primary goal was to develop macro, untainted evidence of the goodness of our national policy to encourage more employee ownership through the ESOP model.

Clearly it took some years to build up a pot of money, or endowment to use the formal term, and then some years for the spending of that money to have tangible results that the Association could wave around and say, “See what the Foundation can do for you and your ESOP company in saving positive ESOP laws!”

From day one of the Foundation, before it had even a little bit of extra money, the Foundation has supported questions on what is known as the General Social Survey (GSS), which is conducted every four years by an affiliate of the University of Chicago that deals with “shared capitalism.” These shared capitalism questions number only a few in the multi-million dollar GSS Survey. These questions are funded with $100,000 from the Foundation. [To explain the shared capitalism term, it was developed by leading ESOP academics at Rutgers University School of Management and Labor Relations to explore what average pay employees were experiencing in terms of job security, wealth, and work place views in companies with ESOPs, 401(k)s with company stock, cash profit sharing, broad based stock options, and worker owned co-operatives. Clearly, in terms of employee ownership, the ESOP model is the most dominant of these models of average pay employees sharing in the capitalist structure of their employers.]

By having these top researchers at Rutgers, Drs. Joseph Blasi and Douglas Kruse, often in collaboration with Dr. Richard Freeman of Harvard University and the National Bureau of Economic Research, develop the questions on shared capitalism once every four years, analyze the responses, and cross tab those responses to other data from the survey, no one can say that the results were “cooked” up by a group promoting ESOPs and employee ownership.

And what has come from the results of the 2010 GSS is golden as the ESOP community can go to Congressional decision makers and say, “Maintain positive ESOP laws; stop negative agency actions against ESOPs!”

As reported, the 2010 GSS evidences that employee stock owned companies laid off employees during the Great Recession at a rate of less than 3%, whereas conventionally-owned companies laid off employees at a rate over 12% — a four to one ratio.

We, the Association circulated this data to the press and to members of Congress.

But, then we realized that most of the talk in DC was about the Federal debt, along with reforming the tax code to get rid of tax “loopholes” — let us assure you that many Federal officials and financial experts consider all positive ESOP tax laws to be undeserved tax loopholes.

So, we got to thinking with our counterparts at the National Center for Employee Ownership, or NCEO, that when people have jobs, they pay taxes, income, FICA, Medicare, and do not take checks from the Federal government.

So, how much money did the wonderful layoff record of employee stock owned companies save Uncle Sam during a typical year of the Great Recession?

Crunching numbers, primarily by former NCEO Executive Director Corey Rosen, with review by current Director Loren Rogers, and some comments from Dr. Kruse, it was estimated that for every $1 ESOP companies benefited from special ESOP tax laws, Uncle Sam took in, in taxes, nearly $7.

So, when the tax committees decide what tax loopholes to close to save Federal money, we will say, “You want to save money, keep the ESOP laws as they are; and if you are wise, pass laws to encourage more ESOPs.”

No question, the most powerful lobbying tactic for ESOPs is the story of your company, told personally in your home town to a member of Congress; but it does not hurt to have that macro data that money from the Employee Ownership Foundation made possible.

In sum, every dollar given to the Foundation by ESOP advocates is worth it, as proven by data gathered from the General Social Survey, and used by the ESOP community to make the case for ESOPs as the best debt reduction policy Uncle Sam has.